Tesla Loses The Power Of Myth

Image via Flickr/ Dawn Endico

Tesla Motors Inc (NASDAQ:TSLA) has a simple narrative behind it. A brilliant engineer cracks the code of a fabled product, brings it to market and earns billions. That story has attracted thousands of people to the company’s stock through 2013, but the power of myth has waned in recent weeks.

Stock in the electric car builder has dumped more than a quarter of its value in the last 30 days trading. Tesla Motors (NASDAQ:TSLA) investors have reaped huge returns in 2013, but those who bought stock in August or later are down on their Tesla bet. The myth is losing its power, and it may be difficult for the stock to recover.

Mythic Perfection At Tesla

One of the factors most harmful to the Tesla Motors myth has been the loss of perfection. When the Tesla Model S arrived it was a fairy tale. The car got the highest score of any ever made in several publications, and was dubbed the safest car in the world. Perfection is not realistic, though it does bolster a hero myth.

It turned out the Tesla Motors Model S was not perfect. A few fires in the car in recent weeks have burst that bubble. The Model S is still a fantastic car, and it is still one of the safest on the road, but it is no longer perfect.

The repetition of the fact that the car was not perfect, and it might not suit everyone, was one of the key factors in reducing the price of the company’s shares. Tesla Motors, was valued on a story. That story is less credible now than it was in July. The step from divine to simply great did wonders for a revaluation of the company’s stock.

Valuing Tesla Motors

Tesla Motors is still valued on a myth today, but that myth is not as strong as it once was. It is no longer full of prophetic and significant statements. A sprinkle of qualifiers have been added and the “if, then” constructions spoil the rhythm.

There are other ways to value a stock, and those who are experienced investors will know them. Tesla can be valued simply on risk/reward. Investors will have to enumerate the risks and then the possible rewards, and decide what the company needs to do to reach a price target.

Tesla Motors Inc (NASDAQ:TSLA) is not a stock that should be avoided at all costs, but it is a risky place to put money. Investors still valuing the company on a story would do well to leave their positions. Their discipline is religion rather than investing, and there are better gods to pray to.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.